This week the Conference Board (i.e., a not-for-profit, nonpartisan organization of business leaders representing a variety of major industries) announced that consumer confidence was up 35% from April, and it was the fourth-largest jump in the index’s 32-year history.  The index is now in positive territory and at its highest level in eight months.  I believe many factors play a part in this from the recent stock market rally, the large banks passing the government “stress test,” and economists predicting the end of the recession later this year just to name a few.  History has shown that confidence usually translates into spending, which is what fuels the vast, vast majority of the U.S. economy.  Thus more spending > more business sales > more business income > higher stock prices > more confidence > more spending. 

This traditional equation has worked over the years; however, consumer and government debt are at record levels.  Thus, the money we would normally have to spend is actually going toward our outstanding debts.  As such, this cycle may not be as quick or strong as past economic recoveries.  Supporting this assumption is the announcement this week from Manufacturers Alliance that U.S. manufacturing output is expected to decline 12% this year, which is much sharper than 8% it predicted just three months ago, and grow a modest 2% in 2010.  If consumers are buying less, then companies will respond by producing less. 

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It is spring, and it has been a very wet one in Overland Park.  However, the nice weather has put most everyone I know in a much better mood.  The same can be said for investors and consumers, both seem to be much more optimistic about the stock market and economy.  Especially when the Conference Board (i.e., a not-for-profit, nonpartisan organization of business leaders representing a variety of major industries) noted this week that signs of an economic recovery may be near.  This is based upon its index of leading economic indicators rising 1% in April after seven straight monthly declines.  Also, it was the largest gain in nearly four years. 

 However, there are still some underlying issues at play that temper my enthusiasm for the coming months.  The following are just a few examples: 

 •·         Three of the United State’s biggest trading partners – Mexico, Japan and Germany each saw their economies contract substantially in the first quarter of this year. 

•·         Britain’s government debt outlook was lowered from stable to negative by Standard & Poor’s.  Britain currently enjoys an AAA credit rating, same as the U.S. government, which is reserved for the least risky bond issuers.  However, S&P is concerned that Britain will not be able to maintain its AAA credit rating in the years ahead.

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The London Associated Press noted today that the 16 countries that make up the European Union or euro zone saw their economies shrink by 2.50% in the first quarter.  In fact, Germany, the world largest exporter, saw its economy shrink by 3.80%.  It’s the country’s biggest economic contraction since 1970 when West Germany began compiling records.

The governments comprising the euro zone are optimistic that the large interest rate cuts, stimulus spending and aid given to struggling banks will result in the first quarter of 2009, marking the low point of the recession.

Economies, the stock market, and standards of living have historically all grown / increased over time.  Expansion is their natural trend.  However, they experience periods or cycles of contraction (i.e., recessions), within this long-term trend of expansion.  Currently, all of the previous mentioned (i.e., global economies, stock markets and standards of living) are experiencing contraction.  However, if we were to view their historical pattern over the last 20, 50 or even 75 years, we would see periods of contraction within their overall expansions.  I bring this up because we have all seen and benefitted from the expansion periods, and we have and continue to feel the ill effects of a severe contraction / recession.  

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The U.S. Labor Department reported today that the pace of layoffs slowed in April when employers cut 539,000 jobs, the fewest in six months.  The job cuts weren’t as deep as expected, but the new report underscored the toll the longest recession since World War II has taken on America’s workers and companies. However, the slowdown in layoffs may bolster expectations that the worst of the downturn’s hefty job losses are past.

“There are glimmers of hope.  We are moving in the right direction in terms of layoffs.  They are measurably less bad than what we’ve been through,” said Mark Zandi, chief economist at Moody’s Economy.com.  That being said, companies will remain wary of hiring, making it harder for unemployed workers to find new jobs.

The U.S. may see unemployment rebound much quicker than in Europe.  In a May 7^th Wall Street Journal article, it was noted that European companies will most probably lag when it comes to hiring new workers.  For example Germany and France have wage-tax burdens of 52.20% and 49.20% of their respective total labor costs.  However, this current burden is estimated to be at 30.0% for U.S. companies.  Economists expect the U.S. to stabilize much faster than Europe, and the International Monetary Fund predicts that overall European economies will continue shrinking next year, whereas the U.S. should bottom out by then. 

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We have clients that either did not know their credit history or did not know that they were eligible to receive one free credit report a year. By reviewing your credit report regularly, you are able to:

• Review credit account histories to determine, inaccurate or incorrect information.
• Detect unauthorized activity or fraud
• View activity from all three credit reporting bureaus
• See who’s pulled your credit
• See your public information, such as addresses, etc
• Dispute inaccurate information
• For a fee, you can also pay to see your credit score

If you would like help in getting your free credit report, please call (913) 897-2074 and we will walk you through the process.

In the past, several clients have come to us asking for help with their new car purchase. If you would like us to help price your next new car, just let us know. We just need to know what make, model and options you want? Here are some of the steps we use to put your car out to bid.

1. Research dealer invoice prices through Edmunds.com
2. Locate any dealer incentives, rebates and special financing options
3. Send the car out to bid to multiple dealers for anonymous pricing
4. Arrange Trade-ins if applicable
5. Negotiate a final price
6. You pick up your new car, no haggling, no surprises.

To learn more about this service, complete our inquiry form or contact us at (913) 897-2074 or info@iia-kc.com.

Many parents believe that once their child enters college that it is too large to fund a college savings program. This is partially true. Even if you are paying college expenses out of pocket, you should still consider opening and funding a 529 plan.

The intent is not to accumulate a large balance for future college expenses, but to take advantage of the tax deduction offered by the various states. For example, Kansas allows a dollar-for-dollar deduction of up to $6,000 per child from your Kansas taxable income for contributions to a qualified 529-college program.

If the Kansas income tax rate is say 6%, then contributing $6,000 into the program would save you $360/year in Kansas state income taxes.

But what about market fluctuation, and the need to pay the tuition now and not in future years?

Simple, just deposit the funds into the money market option inside the 529 program, and a month later withdraw it to pay college expenses. You are able to use the funds for current college expenses, not be subject to any market risk and claim a deduction from your Kansas taxable income. Missouri residents have a similar state income deductions option, only it is limited to $8,000 per parent with a maximum deduction of $16,000 per couple.

The following information and quotes were extracted from the April 30, 2009 Wall Street Journal:

• Chrysler filed for Chapter 11 bankruptcy protection today, kicking off what the Obama administration predicts will be a 30- to 60-day restructuring of the third-largest U.S. auto maker. At the same time, it entered into a partnership with Italian auto maker Fiat SpA. I don’t like to see a large U.S. company go into bankruptcy; however, it is necessary. Hopefully, a leaner and more competitive car company will emerge. Unfortunately, Chrysler stock and bond holders will get the short-end of this stick.
• The U.S. Labor Department reported this week that new applications for unemployment declined last week. In addition, companies drew down inventories at the fastest pace since the start of the decade. This is due to a huge contraction in consumer spending and companies dramatically lowering production in response. However, now that inventories are down, it could lead manufacturers to ramp up production as consumer spending stabilizes or even improves.“We think we’re moving toward stabilization in the economy,” said Joseph Brusuelas of Moody’s Economy.com. “We expect to be at a point later this year where firms will feel much more comfortable taking risks and cautiously rebuilding stocks.”“There was a modest upgrade to the economic outlook, and (confirmation) that consumer spending is stabilizing,” said Sean Simko, head of fixed-income management at SEI Investments.
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